Business strategy is about trying to predict the future, and be prepared for it, which is why so many Canadian oil and gas, electricity and pipeline companies are using a “shadow” carbon price.

As the name suggests, a shadow carbon price is not the actual market price of carbon. In many jurisdictions in Canada, there is no carbon price (except Alberta, BC and Quebec). This is why forward-looking companies are using a “shadow” carbon price, which is basically what they believe the future value of carbon will be. It reflects the expected market price or regulatory cost, or the cost of reducing or offsetting carbon emissions.

Sustainable Prosperity’s new policy brief on the use of Shadow Carbon Pricing is based on a series of interviews with some of the top energy companies in Canada. SP found that all ten companies surveyed use a shadow carbon price: seven formally and three have used it at least once, informally. The prices they are using range from C$15-68 per tonne CO2e.

Companies that are using a shadow carbon price now in their business decision-making are doing so in preparation for the time when there is an actual carbon price, which these companies believe is inevitable. It is a kind of “stress test” – to make sure that business decisions can stand up to expected future developments that will have material financial impacts.

The main reasons companies are using a shadow carbon price are to mitigate against risks and realize opportunities. Companies are using it across the full range of business decisions, and levels of the organization.

Energy companies in Canada are prepared, or are preparing, to deal with a market price for carbon, by incorporating a shadow carbon price into their current decisions